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Trading Halts and Price Discovery

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Abstract

Trading halts have their proponents and opponents. Recent literature has examined the benefits of halts, if any, by studying the consequences of halts on order flow and price volatility. This study complements existing literature by examining the consequences of trading halts on price discovery. Our results indicate that stock price adjustments surrounding trading halts are conditioned on the underlying event that caused the halt. The weighted price contributions of all subsamples are concentrated in the halt period and some subsamples show significant price contribution in the pre-halt period as well. We find minimal evidence of price discovery continuing after the halt is removed. In addition, cross-sectional analysis shows that price discovery in the pre-halt and halt periods are more pronounced for larger firms and for firms with specific news events.

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Authors and Affiliations

  1. Florida Atlantic University, Boca Raton, FL, USA

    Jeff Madura

  2. Sigmund Weis School of Business, Susquehanna University, 514 University Drive, Selinsgrove, PA, 17870, USA

    Nivine Richie

  3. Pace University, New York, NY, USA

    Alan L. Tucker

Authors
  1. Jeff Madura
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  2. Nivine Richie
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  3. Alan L. Tucker
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Correspondence to Nivine Richie.

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Madura, J., Richie, N. & Tucker, A.L. Trading Halts and Price Discovery. J Finan Serv Res 30, 311–328 (2006). https://doi.org/10.1007/s10693-006-0421-x

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  • DOI: https://doi.org/10.1007/s10693-006-0421-x

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